Rebalance away from equities and gold, in favour of debt

Undertaking this annual exercise will restore your portfolio's risk profile to its original level

- SANJAY KUMAR SINGH & KARTHIK JEROME

As 2024 draws to a close, many investors will approach their financial advisers for an annual portfolio review. Do-it-yourself investors should also conduct this exercise to eliminate the excess risk that may have accumulated in their portfolios over the past year.

Portfolios overweight on equities, gold Many investors' equity exposure has exceeded their original strategic (long-term) allocation due to the strong performance of this asset class, both domestically and internationally, over the past year. Allocation to gold has also increased.

"Investors need to be mindful that such returns may not get repeated in the near future," says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.

Investors whose original equity allocation stood at, say, 70 per cent, may now find it has increased to 80 or 85 per cent.

"There is currently a temptation among investors to increase their long-term equity allocation to a higher level," says Arun Kumar, head of research, FundsIndia.

Investors have flocked to high-performing categories, like momentum funds. "Many investors have entered this category without understanding its nature and risks," says Bhavana Acharya, co-founder, Primeinvestor.in.

With debt funds losing their indexation benefit, investors have been looking for tax-friendly alternatives. "Many have substituted debt funds with balanced advantage funds and multi-asset allocation funds, believing they are exact substitutes, when they are not," says Acharya.